Growth in US Services Cools in September as Orders Slow
The pace of growth in U.S. service industries cooled last month from the best readings in a decade, a sign consumers may be taking demand down to a more sustainable level in the face of global weakness.
The Institute for Supply Management’s non-manufacturing index declined to 56.9 in September from 59 the prior month, the Tempe, Arizona-based group said Oct. 6. A gauge above 50 denotes expansion, and the median estimate in a Bloomberg survey of economists called for a reading of 57.5. Figures in July and August were the strongest since 2005.
“The previous months were crazy on the upside, versus where the economy is on overall growth,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, whose forecast of 57 was among the closest in the Bloomberg survey. The gauge is “still holding up pretty well.”
Demand for services, which make up the bulk of the economy, has held up in the face of financial-market volatility and a slowdown in international markets as the consumer has remained willing to spend. However, with payroll growth slowing and wages still stagnant, households may become more cautious.
Estimates in the Bloomberg survey of 71 economists ranged from 56 to 60. Thirteen industries reported expansion in September, led by educational services, construction, finance and health care. Mining, which includes oil and gas well drilling, and retail were among the four that contracted. The last time retailers reported shrinking business activity was February 2014, in the aftermath of a slump in sales owed to harsh winter weather.
There’s “a little bit of softening in the retail market,” Anthony Nieves, chairman of the ISM non-manufacturing survey, said on a conference call after the release. The weakness may “be attributed to the softening of the stock market and consumer confidence.”
The new orders gauge dropped to 56.7 in September, the lowest in seven months, from 63.4 the prior month. The 6.7-point plunge was the largest since November 2008. Bookings contracted in four industries, including mining, retail and transportation.
The business activity index, which parallels ISM’s factory production gauge, declined to 60.2 last month from 63.9 in August, while a measure of services employment picked up to 58.3 from 56.
The gauge of prices paid decreased to 48.4, indicating costs were falling, from 50.8. September marked the second-lowest reading since July 2009.
The ISM services survey covers an array of industries, from retailing to health care, that make up almost 90% of the economy. It also factors in agriculture and construction.
The group’s manufacturing index last week fell to its weakest level in more than two years, declining to 50.2 in September from 51.1 the month before. The report showed a broader swath of industries suffered from the effects of a strong dollar and faltering overseas markets, with the slowdown paced by weakening orders and employment.
The jobs report Oct. 2 corroborated that performance, showing factory payrolls posted their biggest back-to-back decline since 2010.
Even service industries, which typically are more shielded from global weakness, shifted into a lower gear. Payroll growth there has slowed for four straight months, the longest such streak since 2001.
Wage growth remained disappointing, with average hourly earnings falling a penny to $25.09 in September from the month before. From the year before, they were up 2.2%, within the same narrow channel they’ve tracked since the recovery started in June 2009.
